Randall Weiss et al. v. Michael D. Smulders et al. (2012)

MEMORANDUM OF DECISION RE MOTION TO DISMISS (# 224)

The present case arises from a business relationship between the plaintiffs, Randall Weiss and his company, Gourmet and Specialty Food Works, LLC, and the defendants, Michael Smulders and his company Garden of Light Natural Food Markets, Inc. On April 26, 2007, the plaintiffs filed this suit.   The operative complaint is the plaintiffs' second amended complaint, dated July 15, 2009.   In the second amended complaint, the plaintiffs allege that Smulders is liable for breach of oral contract (count one) and promissory estoppel (count five), Garden of Light is liable for breach of written contract (count four) and both defendants are liable for negligent misrepresentation (count two), intentional misrepresentation (count three) and unjust enrichment (count six).

The basic premise of the allegations is that Smulders and his company were involved with producing and selling granola.   Smulders approached Weiss to help Smulders develop his product and increase distribution.   In order to work toward those goals, Weiss subsequently created Gourmet and Specialty Food Works.   The plaintiffs allege that the parties agreed to maintain separate corporations, working towards a common goal, with the intention of eventually combining businesses.   To that end, Weiss put forth efforts on behalf of both companies.   Subsequently, Smulders failed to abide by his part of the promise and did not merge his company with Gourmet and Specialty Food works, nor did he compensate Weiss for work that he completed on behalf of their venture.   As a result, the plaintiffs suffered damages.   Further factual allegations will be discussed as necessary.

The matter was tried to this court from October 19, 2011 to October 21, 2011, and October 24, 2011.   Subsequent to the trial, the court ordered post-trial briefs and the defendants expressed an intention to file a motion to dismiss based on subject matter jurisdiction.   On November 23, 2011, the defendant filed a motion to dismiss on the ground that the court lacks subject matter jurisdiction over the plaintiff's claims.   The motion to dismiss was accompanied by a memorandum of law.   On December 14, 2011, the plaintiff filed an opposition to the motion to dismiss, and, on December 15, 2011, the plaintiff filed an amended opposition to the motion to dismiss.   On December 19, 2011, the court heard oral arguments.

Discussion

“A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction ․ When a ․ court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light ․ In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader ․ The motion to dismiss ․ admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone” (Internal quotation marks omitted.)  Gold v. Rowland, 296 Conn. 186, 200–01, 994 A.2d 106 (2010).  “The issue of standing implicates this court's subject matter jurisdiction.”  (Internal quotation marks omitted.)   Wellswood Columbia, LLC v. Hebron, 295 Conn. 802, 809, 992 A.2d 1120 (2010).  “Standing is the legal right to set judicial machinery in motion.   One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy.”  (Internal quotation marks omitted.)  Electrical Contractors, Inc. v. Dept. of Education, 303 Conn. 402, 411, 35 A.3d 188 (2012).

In the present case, the defendants argue that the plaintiff, Randall Weiss, lacks standing to pursue certain of these claims, and, thus, those claims must be dismissed.   More specifically, the defendants argue that the alleged oral contract and portions of the plaintiff's other claims came into existence prior to Weiss's filing for bankruptcy in December 2003.   The plaintiff argues that all such claims should have been a part of Weiss's bankruptcy account, and therefore only the trustee thereof would have standing to file an action based upon them.   Weiss counters that the contract did not belong in the bankruptcy account and all other claims accrued after the filing of bankruptcy, and therefore the plaintiff has standing to bring the present action.   The court will address each claim in turn.

I

Breach of Contract

The defendants argue that the alleged oral contract between the parties was formed, if at all, on or about September 2003.   Weiss filed for bankruptcy in December 2003.   Therefore, the contract should have been in the bankruptcy estate.   The defendant acknowledges that the bankruptcy was subsequently discharged, but contends that this contract could not have been released to Weiss by the bankruptcy trustee because it was never in the estate in the first place.   Therefore, the contract is still the property of the bankruptcy estate and Weiss does not have standing to sue upon it.   Weiss counters that the contract was an executory contract for personal services, which is excluded from the bankruptcy estate and therefore it did not need to be included in the estate and therefore Weiss has standing to sue upon it.   The defendants disagree that the alleged contract was an executory contract for personal services and argue that, even if it is a personal services contract, it still needed to be included in the bankruptcy filing and it was the trustee's job to determine whether or not it could be excluded.

There is no dispute among the parties that, on or about December 5, 2003, Weiss filed a bankruptcy petition with the federal bankruptcy court.   When a bankruptcy petition is filed, the United States code states that:  “(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate.   Such estate is comprised of all the following property, wherever located and by whomever held:  (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case;  (2) All interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is—(A) under the sole, equal, or joint management and control of the debtor;  or (B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so liable;  (3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553, or 723 of this title;  (4) Any interest in property preserved for the benefit of or ordered transferred to the estate under section 510(c) or 551 of this title;  (5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—(A) by bequest, devise, or inheritance;  (B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree;  or (C) as a beneficiary of a life insurance policy or of a death benefit plan;  (6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case;  (7) Any interest in property that the estate acquires after the commencement of the case.”   Based upon this law, the defendants argue that the contract is part of the bankruptcy estate.

In arguing that he has standing, the plaintiff argues that this is an executory contract for personal services.   As previously stated, the estate shall include, inter alia, “(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.”  Based upon this language it has been held that executory personal services contracts are not assumed or assigned by the bankruptcy estate.   See In Re Bonfil, 25 B.R. 550, 552 (S.D.N.Y.1982) (“An executory personal services contract is excluded from the estate pursuant to Sections 541(a)(6) and 365(c) of the Bankruptcy Code, since the trustee cannot assume an executory personal services contract of the debtor”).

In analyzing this issue, the first question is whether this court has authority to decide whether this alleged contract belonged in the bankruptcy estate.   The court answers this question in the affirmative.   While, in the ordinary course, this determination would be made by a bankruptcy court or trustee, the court finds no authority for the proposition, that, if an unassignable asset is not reported in a bankruptcy, it will forever be included in that bankruptcy.   This court is adequately suited to determine the nature of a contract and determine whether the plaintiff has a right to sue upon it.

Next, the court must address the contract itself.   Here, the plaintiff contends that the alleged contract is such a contract and should be excluded from the estate.  “An executory contract is one in which a party binds him or herself to do or not to do a particular thing in the future.   An executory contract is one which has not yet been fully completed or performed, or in which an obligation relates to some future event.   A contract is executory when substantial performance remains due by both parties, such that failure of either to complete performance would constitute a material breach excusing performance of the other.   However, a contract is not executory merely because it has not been fully performed by payment, if all the acts necessary to give rise to an obligation to pay have been performed.”   Vanliner Insurance Co. v. Fay, Superior Court, judicial district of Fairfield, Docket No. CV 98 0352037 (September 7, 2004, Stevens, J.) (37 Conn. L. Rptr. 844, 848).

“[I]t is indeed the general rule that contracts for personal services cannot be assigned.   To be technically accurate, it is not the benefits that are nonassignable;  rather, it is the duties which are nondelegable.   Performance, in other words, cannot be delegated to another ․ Thus if a specific artist is hired to paint a picture, the artist cannot delegate his duty of performing ․ Personal performance is of the essence.   Agreements to render professional services as a physician or lawyer fall within this rule ․ Whether a duty is personal such that it cannot be delegated, however, is a question of the intention of the parties to be ascertained from the contract, its nature, and the attending circumstances.”  (Citations omitted.)  Rossetti v. New Britain, 163 Conn. 283, 291, 303 A.2d 714 (1972).

In the present case, the alleged contract relied on the personal services of Weiss.   As he testified at trial, he was expected to expend “sweat equity” based on his experience and expertises.   When asked to describe this, Weiss stated:  “What I meant—what I thought it was clear that he meant was that I would put my heart, soul, and perspiration into this and help him in every way except from the manufacturing standpoint, to make this a success.”   Trial Transcript, p. 50.   When asked what he brought to the operation, Weiss stated:  “Experience.   Packaging experience, sales and marketing experience and the fact that I was, even though I couldn't help out financially, I was in a position to work for the business while it didn't make a profit.”  Id. While the terms of the alleged contract remain in dispute, the testimony, in the light most favorable to the non-moving party demonstrates that the Weiss performed personal services.   It appears that Smulders approached Weiss for the purpose of reaping the benefits of his purported expertise in the area of product distribution.   In consideration for his expertise, Weiss would receive the benefit of merging the companies.   Therefore, the contract, if it existed, was for personal services.   Further, according to the allegations and supported by Weiss's testimony, these actions were taken in accordance with a contract that could not be fully executed until after the filing of the bankruptcy petition because the benefit to the plaintiff was the merger of the companies, which was not expected to occur until after the bankruptcy petition was filed.   To this end, the plaintiff submitted into evidence at trial an email from Smulders, dated March 17, 2008, which states:  “Hi Randall, judging from our recent success with distribution, I think we should move forward with creating NEWCO as we had discussed.”   Trial Ex. 18.   Therefore, because neither party had complied with their portion of the alleged agreement at the time of the bankruptcy filing, the contract was executory.

For the foregoing reasons, the contract, as alleged, is an executory personal services contract.   Therefore, plaintiffs have standing to file this suit and the motion to dismiss is denied as to this count.   It is noted that the court, at this time, takes no position as to the validity or enforceability of the contract.   For the purposes of this decision, the court accepts all facts and testimony in the light most favorable to the non-moving party.   Neither party has asked this court, on the motion to dismiss, to entertain factual disputes regarding the validity of the contract and, therefore, the court addresses only the nature of the contract as seen in the light most favorable to the non-moving party.

II

Tort Claims

As to the claims for misrepresentation, unjust enrichment and promissory estoppel, the defendants allege that they at least partially occurred prior to the bankruptcy filing and should have been included in the bankruptcy estate.   The plaintiffs respond by arguing that an action has not accrued until all elements, including damages, have been fulfilled.   Here, the plaintiffs argue, the elements did not all occur until after the filing for bankruptcy.

As previously stated, the plaintiffs' assets, with certain exceptions, were to have been included in the bankruptcy estate.   This includes any fully formed cause of actions.   Here, the defendants argue that the plaintiffs' complaint as to their tort claims should be dismissed as they relate to claims that accrued prior to the filing of the bankruptcy petition.   It is a well-settled rule of tort law that each element of cause of action must be achieved before a cause of action accrues.   See Burke v. Klevan, 130 Conn.App. 376, 381, 23 A.3d 95, cert. denied, 302 Conn. 936, 28 A.3d 990 (2011), cert. denied, 182 L.Ed.2d 234 (2012) (“[A]n action cannot be maintained until a right of action is complete ․ A cause of action does not accrue for the purposes of a statute of limitations until all elements are present, including damages, however trivial.” (internal quotation marks omitted)).   On each and every tort claim in this case, the plaintiffs allege that they did not incur damages until after the filing of the bankruptcy.   As previously stated, Smulders was still affirming to Weiss as recently as March 2008 that the contract was to be completed.   Therefore causes of action related to the failure to fulfill that contract (misrepresentation, unjust enrichment and promissory estoppel) had not fully accrued in December 2003, and they need not have been reported to the bankruptcy court and the plaintiff has standing to sue.   At the very least, it is apparent that the plaintiffs were unaware of the claims and therefore could not have included them in the bankruptcy account.

For the foregoing reasons, the motion to dismiss is denied.   Once again, it is noted that, at this juncture, the court takes no position on the merit of the plaintiffs' tort claims.

Woods, J.

Woods, Glenn A., J.